1-1

Welcome to BU8101
Accounting: A User Perspective

Lectures Financial Mrs. Ho Yin Kheng

1 to 6 Accounting [email protected]

Lectures Managerial Mr. Rony Lim

7 to 12 Accounting [email protected]
 Course Objectives and 1-2

Requirements
 Course Objectives
 To expose students to the environment of accounting and the
role of accounting in business organizations for useful
decision making
 Course Schedule
 1.5-hour lecture per week commencing on 11 August 2015.
 1.5-hour seminar per week commencing from the week
beginning 17 August 2015.
 Prescribed Text
 Williams, J.R., Haka S.F. and Bettner M.S. (WHB) Financial
and Managerial Accounting: The Basis For Business
Decisions, 17th Edition, McGraw-Hill (2015)
 Further Information
 Course Outline in Edventure
 Course Objectives and 1-3

Requirements
 Online e-learning
 McGraw Hill’s Connect system (compulsory)
 Course Assessment
 Continuous Assessment
• Online Assignments (compulsory) 10%
• Presentation 10%
• Participation 10%
• Online Quiz (closed book) 20% 50%
• Final Examination (closed book) 50%
Total Assessment 100%
 Online quiz to be held in the week commencing 5 October
2015 during seminar sessions at IT labs
 Final Examination on Wednesday, 24 November 2015 at
5.00pm
 BU8101 1-4

Accounting: A User Perspective

Lecture 1
Introduction to Accounting
 1-5

Suggested Readings
 Compulsory
 Lecture notes
 Chapters 1 (learning objectives 1 to 7) & 2 of Financial and
Managerial Accounting: The Basis For Business Decisions
17th edition by Williams, J.R., Hakka,S.F. and Bettner,
M.S. (2015).

 Reference
 Chapter 1 of Accounting Principles 11th edition by Jerry J.
Weygandt, Paul D. Kimmel, Donald E Kieso (2014).
 http://www.acra.gov.sg/
 http://www.asc.gov.sg
 SingPost Annual Report 2014
 1-6

Learning Objectives

1. Describe business and the goals of business

2. Explain the importance of accounting
3. Discuss the accounting environment and the
importance of ethics
4. Explain elements of the financial statements and
basic accounting principles
5. Analyze business transactions using the
accounting equation
6. Show how financial statements are linked
 1-7
LO 1

Learning Objective 1

Describe business
and the goals of
business
 1-8
LO 1

Overview of Business
A business is an economic unit that aims to sell
goods and services to customers at prices that will
provide an adequate return to its owners.
Business Goals
Profitability—earning a sufficient return to maintain owner
interest
Liquidity—having enough cash to pay debts as they
come due
Some well-known businesses are:
 1-9
LO 1

Business - The Big Picture

This diagram gives you a big picture of how business operates:

Financing Activities

Financial resources from

Profits are used to owners and other creditors
repay owners
and creditors Used to acquire
Profits generated
operating assets
are also reinvested
Operating Activities Investing Activities
Operating assets are used to
produce and sell goods and services
 1-10
LO 1

Financing Activities

Financing activities occur when owners or creditors provide

resources to a company or when a company transfers resources to
owners or creditors.
 1-11
LO 1

Investing Activities

Investing activities involve the acquisition or disposal of

long-term resources used by a business.
 1-12
LO 1

Operating Activities
Purchase of Goods for Sale Selling Goods to Customers

Operating activities are those activities necessary to

acquire and sell goods and services.
 1-13
LO 2

Learning Objective 2

Explain the importance

of accounting
 1-14
LO 2

The Accounting Process

Accounting: is a Identifies Business
the language of system that Activities
business
Records Business
Activities
Qualitative
Characteristics information
Communicates
•Relevance that is
Business Activities
•Faithful
representation
•Comparability
Decision-makers
•Verifiability
use reports to make
•Timeliness
•Understandability Cost Constraint better decisions.
 1-15
LO 2

Users of Accounting Information

Financial
Accounting
External Decision
Makers
 1-16
LO 2

Users of Accounting Information

Managerial Accounting
Internal Decision Makers
 1-17
LO 2

Who Uses Accounting?

The Accounting Umbrella

Governmental Non-Profit For-Profit

Accounting Organizations Organizations

Sole
Partnership Corporation
Proprietorship

Publicly -
Private
Traded
 1-18
LO 2 Forms of For-Profit
Organizations

Sole Partnership Corporation

Proprietorship

For more information on the above, refer to ACRA website

http://www.acra.gov.sg/
Copyright © 2012 The McGraw-Hill Companies, Inc.
LO 2 Reporting Ownership Equity in the 1-19

Statement of Financial Position

Sole Ow ner's equity:

Proprietorships Jill Jones, capital $ 8,000

Partners' equity
Jill Jones, capital $ 4,000
Partnerships Bill Jones, capital 4,000
Total partners' equity $ 8,000

Owners' equity
Share capital $ 7,000
Corporations
Retained earnings 1,000
Total shareholders' equity $ 8,000
Copyright © 2012 The McGraw-Hill Companies, Inc.
 1-20

Review Questions
 Liquidity means having enough funds on hand to
pay debts when they fall due. TRUE
True/False
 Which of the following is not an external user of a
business’s financial information?
A. Tax authorities C. Shareholders
B. Customers D. Managers D
 Which type of business organization is owned by
one owner?
A. Corporation C. Sole proprietorship
B. Partnership D. Items a and b C
 1-21
LO 3

Learning Objective 3

Discuss the accounting

environment and the
importance of ethics
LO 3
The Accounting Environment for 1-22

Financial Statements Reporting

Accounting Standards and
Principles (*SFRS)
Singapore
Companies Act &
Other statutory reqts.
Financial
Statements Code of Corporate
Reporting Governance (pages 40-60#)

Independent Auditor’s
Report (pages 82#)
Accounting
Professionals
#See Singpost Annual Report 2014
* Singapore Financial Reporting Standards
 1-23
LO 3

Importance of Ethics
 Effective financial reporting depends on sound ethical
behavior.
 Recent unethical financial reporting include:
 In US – Enron, Worldcom,

 In Singapore – China Aviation Oil and others.

Ethics

Beliefs that Accepted

distinguish right standards of good
from wrong and bad behavior
 1-24
LO 3
Guidelines for Ethical
Decisions
 Identify ethical  Analyze the  Identify options
situations and elements in the and weigh the effect
ethical issues situation involved of each option

Use personal Identify stakeholders – Choose best option

ethics to identify persons who may be after weighing all
ethical situations harmed or benefited. consequences.
and issues What are the
responsibilities and
obligations of parties Video clip
involved?
 1-25
LO 3
Ethical Decision
Andrew, a final year engineering student at NTU, received two office
interview invitations from the Hong Kong offices of two large firms.
Both firms offered to cover his out-of-pocket expenses (travel, hotel,
and meals). He scheduled the interviews for both firms on the same
day, one in the morning and one in the afternoon. At the conclusion
of each interview, he submitted to both firms his total out-of-pocket
expenses for the trip to Hong Kong for a total of $710. He believes
this approach is appropriate. If he had made two trips, his cost would
have been two times $710. He is certain that neither firm knew he
had visited the other on that same trip. Within 10 days, Andrew
received two cheques in the mail, each in the amount of $710.

 Identify ethical  Analyze the  Identify options

situations and stakeholders in the and weigh the effect
ethical issues situation involved of each option
 1-26

Review Questions
 One purpose of accounting standards and
principles is to make accounting information
prepared by different companies more comparable.
TRUE
True/False
 An audit guarantees that the financial statements
are free of all misstatements. FALSE
True/False
 Ethics are the standards of conduct by which one's
actions are judged as:
A. right or wrong C. honest or dishonest
B. fair or not fair D. all of the options D
 1-27
LO 4

Learning Objective 4

Explain elements of
the financial
statements and basic
accounting principles
 1-28
LO 4

Basic Accounting Principles

Assumptions
Accounting entity: Activities of the business are separate
from activities of owners.
Going concern: The entity will not go out of business in the
near future.
Unit-of-measure: Accounting measurements will be in the
national monetary unit (i.e., S$ in the Singapore).

Principles
Historical cost: (or cost principle) dictates that companies
record assets at their cost.
Objectivity: Accounting information is supported by
independent unbiased evidence.
 LO 4
Financial Statements 1-29

Financial Statements
Statement of Financial Position (usually called Balance Sheet)
Statement of Comprehensive Income ( which consist of 2 parts:
the Income Statement plus Other Comprehensive Income)
Statement of Cash Flows
Statement of Changes in Equity
Notes to the financial statements
Green Lawn Care Service
Balance Sheet
May 31, 2014
Assets Liabilities
Cash $ 26,200 Notes payable $ 13,000
Accounts receivable 500 Accounts payable 2,500
Equipment 2,500 Owners' Equity
Truck 15,000 Capital stock 28,000
Retained earnings 700
Total shareholders' equity 28,700
Total assets $ 44,200 Total liabilities & equity $ 44,200
 1-30
LO 4

The Basic Accounting Equation

Assets = Liabilities + Owners’ Equity
 Provides the underlying framework for recording and
summarizing economic events.
 Assets are economic resources that are owned by the
entity and are expected to provide positive future cash
flows. Examples: cash, supplies, plant and equipment.
 Liabilities are debts that represent negative future cash
flows for the entity. Examples: accounts payable, notes
payable.
 Owners’ equity represents the owners’ claims to the
assets of the business. Examples: Owner's capital,
revenue, expenses and dividends.
 1-31
LO 4

Expanded Accounting Equation

Uses of funds Sources of funds

Owner’s
+ Revenues _ Expenses
_ Dividends
capital

Net Income

Retained Earnings
Retained Earnings represents the total net income of the firm
over the entire lifetime of the business, less dividends
distributed to the shareholders.
 1-32
LO 4

Owner’s Equity
 Increases in Owner’s Equity are caused by:
 Owner’s capital - the assets the owner puts into the
business.
 Revenues - result from business activities entered into
for the purpose of earning income. Examples: sales,
fees, services, commissions.
 Decreases in Owner’s Equity are caused by:
 Dividends - Drawings by owner or distribution of
profits to owner.
 Expenses - the cost of assets consumed or services
used in the process of earning revenue. Examples:
salaries expense, rent expense, utilities expense, etc.
 1-33

Review Questions
 For accounting purposes, a business entity is
regarded as separate from the personal activities
of its owners. Ans: True
True/False
 Using the expanded accounting equation, solve for
the missing amount: $40,000
Assets $100,000
Liabilities $40,000
Owners' capital ?
Revenue $60,000
Expenses $30,000
Dividend $10,000
 1-34
LO 5

Learning Objective 5

Analyze business
transactions using
the accounting
equation
 1-35
LO 5

Let’s analyze some

transactions for Green
Lawn Care Service and
see how they affect the
operation of the
accounting equation.

Transactions are a business’s economic events.

• May be external or internal.
• Not all activities represent transactions.
• Each transaction has a dual effect on the
accounting equation.
LO 5
1-36

Assets = Liabilities + Owners' Equity

Accts. Notes Accts. Capital Retained
Cash + Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
5/1 $ 28,000 $ 28,000
5/8 (2,000) $ 15,000 $ 13,000
5/11 $2,500 $ 2,500
5/29 250 500 $750
5/31 (50) (50)
Bals $ 26,200 $ 500 $ 2,500 $ 15,000 $ 13,000 $ 2,500 $ 28,000 $700

Transactions of Green Lawn Care Service in May 2014

5/1 The owners invested $28,000.
5/8 Truck costing $15,000 was purchased for $2,000 cash and signing a
note payable for $13,000.
5/11 Purchase lawn mower for $2,500 on account.
5/29 The company provided services for $750, of which $500 was on
account and the balance of $250 was received in cash.
5/31 Gasoline for the lawn mower and the truck of $50 was paid in cash.
LO 5 Let’s prepare the Balance Sheet for Green1-37
Lawn Care Service for May 31, 2014.
Assets = Liabilities + Owners' Equity
Accts Notes Accts. Capital Retained
Cash + . Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
1/5 $28,000 $ 28,000
8/5 (2,000) These
$ 15,000 balances
$ 13,000 will
11/5 $2,500 appear on the Balance $ 2,500
29/5 250 750
31/5 (50)
Sheet (50)
Bals $26,200 $500 $ 2,500 $ 15,000 $ 13,000 $ 2,500 $ 28,000 $700
Green Lawn Care Service
Balance Sheet
May 31, 2014
Assets Liabilities
Cash $ 26,200 Notes payable $ 13,000
Accounts receivable 500 Accounts payable 2,500
Equipment 2,500 Owners' Equity
Truck 15,000 Capital stock 28,000
Retained earnings 700
Total shareholders' equity 28,700
Total assets $ 44,200 Total liabilities & equity $ 44,200
LO 5 Statement of Financial Position 1-38

(Balance Sheet)

 Reports the assets, liabilities, and owner’s equity

at a specific date.
 Total assets must equal total liabilities and
owner’s equity.
 Is a snapshot of the company’s financial condition
at a specific moment in time (usually the month-
end or year-end).
LO 5 1-39

Let’s prepare the Income Statement and

Statement of Cash Flows for Green Lawn Care
Service for the month ending May 31, 2014.
Assets = Liabilities + Owners' Equity
Accts Notes Accts. Capital Retained
Cash + . Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
1/5 $8,000 Statement of changes in equity $ 8,000
8/5 (2,000) $ 15,000 $ 13,000
11/5 2,500 $ 2,500
29/5 250 500 Income 750
Statement of cash flows
31/5 (50) statement (50)
Bals $6,200 $500 $ 2,500 $ 15,000 $ 13,000 $ 2,500 $ 8,000 $700
LO 5
1-40

Income Statement
The income statement shows the profit for the period of
time under consideration.
Green Lawn Care Service
Income Statement
For the Month Ended May 31, 2014
Owners and other
Service Revenue $ 750 decision makers
Operating Expense: can use the
Gasoline Expense 50 statement to
Net Income $ 700 evaluate how well
a company has
Revenue > Expenses = Net performed.
Income/Profit
Expenses > Revenue = Net Loss
LO 5
1-41

Statement of Changes In Equity

The statement of changes in equity shows the changes in
equity for the period of time under consideration.

Green Lawn Care Service

Statement of Changes in Equity
For the Month Ended May 31, 2014

Beginning equity $ -
Issuance of shares 28,000
Net income 700
less: Dividend -
Ending equity $ 28,700
LO 5
1-42

Depicts the way cash has changed during a period of time.

Green Lawn Care Service
Statement of Cash Flows
For the Month Ended May 31, 2014
Cash flows from operating activities:
Cash received from revenue transactions $ 250
Cash paid for expenses (50)
Net cash provided by operating activities $ 200
Cash flows from investing activities:
Purchase of truck (2,000)
Net cash used by investing activities (2,000)
Cash flows from financing activities:
Investment by owners 28,000
Increase in cash for month $ 26,200
Cash balance, May 1, 2014 -
Cash balance, May 31, 2014 $ 26,200
 1-43

Review Questions
 Deerpark Corporation recently borrowed $70,000 cash
from its bank. Which of the following was unaffected by this
transaction?
A. Assets.
B. Liabilities.
C. Owners' equity. C
D. Cash.
 Which of the following is correct when a corporation uses
cash to pay for an expense?
A. Total assets will decrease.
B. Retained earnings will increase.
C. Owners' equity will increase. A
D. Liabilities will increase.
 1-44
LO 6

Learning Objective 6

Show how financial

statements are
linked
LO 6 Relationships Among Financial 1-45

Statements
Date at beginning Time Date at end of
of period Income Statement period
Revenue
- Expenses
Net Income
Balance Statement of Changes in Equity Balance
Beginning equity
Sheet issuance of shares
Sheet
A = L + OE Net income A = L + OE
less: Dividend
Ending equity

Statement of Cash Flows

Cash Provided (Used) by:
Operating Activities
Investing Activities
Financining Activities
+ Beginning Cash Balance
Ending Cash Balance
 Green Lawn Care Service Green Lawn Care Service 1-46
LO 6 Statement of Cash Flows Income Statement
For the Month Ended May 31, 2014 For the Month Ended May 31, 2014
Cash flows from operating activities:
Cash received from revenue transactions $ 250 Service Revenue $ 750
Cash paid for expenses (50) Operating Expense:
Net cash provided by operating activities $ 200 Gasoline Expense 50
Cash flows from investing activities: Net Income $ 700
Purchase of truck (2,000) Green Lawn Care Service
Statement of Changes in Equity
Net cash used by investing activities (2,000)
For the Month Ended May 31, 2014
Cash flows from financing activities:
Investment by owners 28,000 Beginning equity $ -
Increase in cash for month $ 26,200 Issuance of shares 28,000
Cash balance, May 1, 2011 - Net income 700
less: Dividend -
Cash balance, May 31, 2012 $ 26,200
Ending equity $ 28,700
Green Lawn Care Service
Balance Sheet
May 31, 2014
Assets Liabilities
Cash $ 26,200 Notes payable $ 13,000
Accounts receivable 500 Accounts payable 2,500
Equipment 2,500 Owners' Equity
Truck 15,000 Capital stock 28,000
Retained earnings 700
Total shareholders' equity 28,700
Total assets $ 44,200 Total liabilities & equity $ 44,200
 1-47

Review Questions
 A transaction that causes an increase in an asset
may also cause an increase in another asset, a
decrease in a liability, or a decrease in owners'
equity. Ans: False
True/False
 A company’s owners’ equity is one-third of its total
assets. Its liabilities total $200,000. What is the
amount of its total assets?
A. $200,000
B. $300,000
C. $350,000
D. $400,000 B
 Learning Outcomes 1-48

Do You Know?
1. What are the goals of a business?
2. Why is accounting important?
3. What are the factors that safeguard the reliability of
accounting information?
4. Why is ethics important in financial statements reporting?
5. What are the six basic accounting principles you have
learnt?
6. How do business transactions affect the accounting
equation?
7. How are financial statements linked?
 1-49

End of Lecture 1